Global Business Guide Indonesia

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Business Updates | Indonesia’s Latest Move on Beef Supply

The Indonesian government issued its ninth economic policy package on 27th January aiming to strike a balance that supports producers, traders, and consumers. Coordinating Minister for Economic Affairs Mr Darmin Nasution announced a number of policies including measures to stabilise beef supply and prices, deregulations affecting the logistics sector, supporting plans to speed up electricity-related infrastructure developments as well as strengthening the creative economy.

The Joko Widodo administration is indicating that they are taking the necessary steps to improve the country’s domestic economy in order to normalise consumption habits through its recent set of issued policies, namely regulations on imported livestock. The aim of stabilising beef prices remains a government concern, particularly given the volatile conditions Indonesia is currently facing. Thus the country’s healthy appetite for beef has led the government to put forth a streamlined plan which balances growing consumer demand with the necessity to diversify its import markets in order to stem the rising price of beef.

Ending single import market reliance

In 2016, Indonesia’s beef supply is projected to incur a deficit of 235,160 tonnes and while the national demand is expected to reach 674,690 tonnes (The Jakarta Post), this inability to close the supply and demand gap has seen the government revise its cattle import regulations. The ninth stimulus package includes upcoming plans for a new zoning system which will see an expansion in the number of approved cattle-importer countries.

Indonesia’s current cattle import regulations require the government to import livestock from countries that have obtained the World Organization for Animal Health’s disease-free status; namely foot and mouth disease. While there are over 70 countries with clearance on food and mouth disease, including Indonesia, Australia remains Indonesia’s primary supplier of imported live cattle. Imports of Australian live cattle amounted to 365,480 heads of cattle in June 2015. In the past, the government looked to India, South Korea, and the Philippines as live cattle markets, but expansion plans stalled when Indonesia’s Ministry of Trade failed to reach a decision after taking into account factors such as price and hygiene. As such, Indonesia created a sole dependency on Australian cattle, bypassing cattle imports from New Zealand and Japan.

Under the new stimulus package, the government will remove the imposed country-based criteria and instead introduce a zoning system within the designated cattle-importer country. In practice, if a country has not obtained certified disease-free status, the Indonesian government would still have the right to obtain imported cattle from a specific zone that is foot and mouth disease-free. However, the new zoning system would also make it more difficult for Indonesian cattle to enter overseas markets with strict adherence on foot and mouth disease-free status.

Moo-ving ahead with self-sufficiency measures

Indonesia’s demand for beef continues to exceed its annual supply which has long been a cause for concern for the government, as well as an untapped opportunity. The average Indonesian beef consumption in May 2015 stood at 2 kilograms per capita (Meat & Livestock Australia) which increased from 1.7 kilograms in 2010 (See Indonesia: Short Beef Supply Spells Long-Term Prospects) as Indonesians experienced an increase in their disposable income. As a means of reducing the supply and demand gap, the government has strived towards the goal of self-sufficiency; however much like other self-sufficiency policies pursued by the country, it has fallen short.

The obstacles in the way of Indonesia’s self-sufficiency in beef include insufficient government support in strengthening the know-how of local breeders and scaling up from the reliance on smallhold farmers. This makes for unreliable supply chains as well as weaker productivity and lower quality beef in comparison to imported counterparts. The Indonesian government therefore has to focus on the supply side to counter spiking prices through efforts such as expanding cattle farms in areas including South Sumatra, West Nusa Tenggara, and Sulawesi.

In November 2015, President Joko Widodo inaugurated the country’s first livestock vessel – named the Camara Nusantara I – designed to transport livestock from East Nusa Tenggara, an island known as a key national cattle supplier, to Jakarta. Average beef consumption in the nation’s capital is estimated at approximately 7-9 kilograms per person (Meat & Livestock Australia). As such, the government is aiming to supply the capital’s beef demand with 80% local beef through its cattle shipping endeavour.

As pressure mounts on the Indonesian government to stabilise beef prices which rose to 120,000 IDR per kilogram near year end 2015, according to West Java’s Industrial and Trade Agency (quoted in Tempo), the livestock vessel is intended to reduce logistics costs between cities. The government has allocated 180 billion IDR for the project and through the initiative, cattle farmers are expected to see a reduction in logistics cost from 1.8 million IDR to 320,000 IDR per head of cattle (The Jakarta Post).

The ambitious cattle transportation project has, however, encountered problems since its first embarkation on 11th September 2015. While the country’s Transportation Ministry, Ministry of Agriculture, and ship operator Pelayaran Indonesia face growing criticism for the past two empty-handed shipments, the Joko Widodo administration is expected to add two additional ports of Waingapu and Lembar as part of the Camara Nusantara I’s journey. Previous failures in cattle shipments are understood to have been caused by a shortage of supply in livestock availability highlighting the extent to which the local cattle industry has been degraded.

Eliminating taxation on livestock

In keeping with its plans to improve upon the national beef supply chain, the Joko Widodo administration will exempt livestock-related business including cattle imports from paying a 10% value-added tax (VAT) that was implemented on 8th January 2016. The imposition of the VAT was originally a government measure to protect local breeders which went into effect during an untimely period of skyrocketing beef prices – above 110,000 IDR per kilogram (Indonesia’s Ministry of Trade) on the day the VAT policy was issued.

According to Bank Indonesia, the stipulated VAT would place additional pressure on the country’s inflation rate for the coming two to three months – January 2016 inflation rate stood at 4.14% year-on-year, up from 3.35% year-on-year in December 2015 (Bank Indonesia). After receiving a series of complaints from industry players such as the Indonesian Chamber of Commerce, the Joko Widodo administration revoked the VAT law on 22nd January.

Optimistic but realistic

Efforts to stabilise the beef price in Indonesia through widening the scope of import destinations is a welcome move, both in terms of the everyday impact for the average Indonesian's pockets as well as signalling a more rational approach to the beef supply issue. The previous administration’s efforts to achieve self-sufficiency in Indonesia’s beef supply through slashing import quotas failed to boost the local cattle breeding industry and only served to spike prices. While the latest move to widen import sources is only meant to serve as a temporary respite, it hopefully points to a more realistic attitude among the Joko Widodo administration and should see Indonesia building a diversified import network, opening up opportunities to exporters given the country’s growing consumption of beef.

Global Business Guide Indonesia - 4th february 2016

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)